Bankruptcy relieves a debtor of all their debts. But, it places control of their assets in another's hands, has onerous restrictions, and damages prospects of obtaining mortgages or other credit in the future.
At this point, the debtor can no longer be pursued by creditors for payment of his or her debts; payment becomes the responsibility of the trustee
All assets belonging to the debtor, including his or her home, come under the control of the trustee. Where the home is co-owned, the debtor's interest can still be realised. In this situation a period of twelve months is allowed before the disposal of the property if it is occupied by a co-owner, family or dependents of the debtor. At the end of the twelve month period, the property will almost certainly have to be put up for sale, enforced by a court order if necessary. It may be possible for an offer to be made to the trustee by the co-owner, family or a friend of the debtor if they are able to raise the funds to pay for the value of the debtor’s interest in the property.
The other main disadvantages of bankruptcy are the constraints forced upon the bankrupt and the stigma of having to declare oneself as a bankrupt.
The following are criminal offences for an undischarged bankrupt:
When a bankrupt is discharged these constraints end.
When a bankrupt is discharged, they are freed from the restrictions imposed on them during their bankruptcy. Despite this, the trustee or Official Receiver can apply to court for a Bankruptcy Restriction Order which would mean that some restrictions continue to be placed on the debtor, even thought the debts have been discharged.
Automatic discharge will happen 12 months after the bankruptcy started. If the debtor has not co-operated fully, or if further investigation is required, the court may be asked to stop the discharge process until the Official Receiver is satisfied that everything had been concluded.
After discharge, the debtor can obtain a certificate of discharge by writing to the court that dealt with their bankruptcy and asking for one to be provided. A fee of £60 is payable.
Once a bankrupt has been discharged they will be free from most of the debts that they owed prior to the bankruptcy.
Some debts are not included in bankruptcy and will be owed after the discharge has been obtained. These include:
Any assets that formed part of the bankruptcy estate and which were claimed by the trustee will not be returned to you. These assets will be realised to pay your creditors. In the (usually unlikely) event that there is a surplus once the creditors have been paid, including statutory interest, and the costs and expenses of the bankruptcy have been paid, this will be returned to you.
Your trustee may take some time to realise the assets. It is usual that if equity in a debtor's interest in a property is not realised within 3 years of the bankruptcy order, that this will be returned to the debtor. However there are exceptions to this and the debtor should contact their trustee directly to discuss this in more detail.